Value relevance of comprehensive income: Tax avoidance and derivative instruments

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Abstract

The existence of comprehensive income as the adoption of IFRS, which has been carried out in Indonesia since 2012, has resulted in this figure information as one of the important information used by investors. Company policies originating from operating and non-operating activities can affect financial information quality. This study deals with the effect of tax avoidance and derivative instruments on the value relevance of comprehensive income. Research data is derived from the financial data of non-financial companies listed on the Indonesia Stock Exchange (IDX) from 2012 to 2019, sourced from www.idx.co.id and finance.yahoo.com. This study’s total number of samples is 202 observations through purposive sampling with several criteria. Data in this research is included cross-section data so that the hypothesis testing employed in this research is ordinary least square regression analysis. This study finds that tax avoidance and derivative instruments are not associated with the value relevance of comprehensive income. This study suggests that investors’ investment decisions are not influenced by information on tax avoidance and ownership of derivative instruments. However, tax avoidance is positively associated with value relevance using the book value of equity basis, while derivative instruments ownership is negatively associated with value relevance with the comparable basis.

Keywords: Derivatives, Tax Avoidance, Management Policies, Value Relevance, Comprehensive Income, IFRS Adoption

Authors’ individual contribution: Conceptualization — A.F. and A.F.; Methodology — A.F., A.F., S.W., and F.I.; Formal Analysis — A.F., A.F., F.I., and P.W.; Investigation — S.W. and A.M.; Writing — Original Draft — A.F. and A.F.; Writing — Review & Editing — S.W., F.I., P.W., and A.M.; Supervision — Am.F., F.I., and P.W.; Project Administration — Ar.F., S.W., and A.M.; Funding Acquisition — Am.F., S.W., F.I., P.W., and A.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M40, M41, M48, M14, H26

Received: 27.03.2022
Accepted: 17.06.2022
Published online: 21.06.2022

How to cite this paper: Firmansyah, A., Fadlil, A., Wijaya, S., Irawan, F., Wibowo, P., & Mabrur, A. (2022). Value relevance of comprehensive income: Tax avoidance and derivative instruments. Corporate & Business Strategy Review, 3(1), 85–95. https://doi.org/10.22495/cbsrv3i1art8